What the ‘free market’ of Major League Baseball is telling us

In baseball’s National League, the team that’s in first place at the season’s midway point spends nearly twice as much on payroll as the first place in the American League.

A look at how teams are doing in 2017 relative to their payrolls shows that the team that spends the most in the National League — the Los Angeles Dodgers payroll is over $247 million — has the best record at 61-29. In the American League, the team that spends the most — the New York Yankees payroll is $209 million — is doing just fair at 45-41, and it isn’t doing nearly as well as the Houston Astros, which has a $130 million payroll and an American League-best 60-29 record.

These are among the findings from BMO Private Bank Strategy, which looked at whether teams have been able to “buy success” this season.

Table: American League

Team

2017 payroll

Team record

Winning %

New York Yankees

$209,154,806

45-41

0.530

Boston Red Sox

$208,290,439

50-39

0.576

Detroit Tigers

$205,134,980

39-48

0.446

Toronto Blue Jays

$186,483,305

41-47

0.464

Texas Rangers

$183,734,055

43-45

0.482

Baltimore Orioles

$170,782,761

42-46

0.476

Los Angeles Angels

$169,300,045

45-47

0.494

Seattle Mariners

$162,571,768

43-47

0.477

Kansas City Royals

$152,119,721

44-43

0.524

Houston Astros

$130,575,903

60-29

0.682

Cleveland Indians

$125,974,180

47-40

0.530

Minnesota Twins

$121,236,195

45-43

0.512

Chicago White Sox

$108,907,733

38-49

0.440

Oakland Athletics

$89,270,900

39-50

0.435

Tampa Bay Rays

$85,132,955

47-43

0.512

Source: BMO Private Bank Strategy

As BMO Private Bank points out, major league baseball is “the closest thing to a free market in the professional sports world” because unlike most other American sports leagues, MLB doesn’t have a salary cap, so big-market teams can spend more than small-market teams.

Instead of a salary cap, MLB has a “luxury tax” for teams that spend over a certain amount. In 2016, the threshold was $189 million; teams had to pay between a roughly 20% and 50% tax on any amount they spent over that, depending on how many years they’d gone over the threshold. A record six teams paid the luxury tax last season: the Dodgers, Yankees, Red Sox, Detroit, San Francisco and Chicago Cubs. Altogether they paid $74 million — including $31.8 million from the Dodgers and $27.4 million from the Yankees.

The “money ball” teams

“Moneyball: The Art of Winning an Unfair Game” is a book written by Michael Lewis, in which he shows how the Oakland A’s for years made the playoffs despite their small payroll. They did so by being smart; for example, they looked for traits in players that other organizations didn’t value as much, such as on-base percentage.

Table: National League

Team

2017 payroll

Team record

Winning %

Los Angeles Dodgers

$247,059,800

61-29

0.663

San Francisco Giants

$187,720,593

34-56

0.395

Chicago Cubs

$178,807,178

43-45

0.500

Washington Nationals

$172,350,290

52-36

0.595

New York Mets

$158,502,938

39-47

0.458

St. Louis Cardinals

$149,177,332

43-45

0.476

Colorado Rockies

$134,948,313

52-39

0.575

Atlanta Braves

$125,393,172

42-36

0.482

Philadelphia Phillies

$120,612,011

29-58

0.337

Miami Marlins

$117,616,795

41-46

0.458

Pittsburgh Pirates

$108,878,039

42-47

0.459

Cincinnati Reds

$105,454,607

39-49

0.429

Arizona Diamondbacks

$103,243,205

53-36

0.612

San Diego Padres

$86,359,052

38-50

0.429

Milwaukee Brewers

$70,026,478

50-41

0.540

Source: BMO Private Bank Strategy

Teams that are succeeding on small payrolls so far this season are the Arizona Diamondbacks, Milwaukee Brewers and the Cleveland Indians. The Diamondbacks are only a few games behind the Dodgers, yet spend $133 million less. The Brewers are in first place in the National League Central, despite having the smallest payroll in baseball, as BMO Private Bank points out.

BMO Private Bank is part of BMO Wealth Management, which provides investing, banking and insurance products.

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